NATIONALASSOCIATIONOF INDUSTRIAL& OFFICE PROPERTIES FINANCING RESEARCH FOUNDATION REGIONAL INFRASTRUCTURE PREPARED BY: Quest Technology, Inc. and Dr. Robert Schmidt, J.D. Ph.D. Regionalism is the hot-topic of debate for those interest groups, state and local governments, and citizen groups that are engaged in the growth management debate. New residential, commercial, and industrial P developments have spread far beyond the established boundaries of central cities and close proximity suburbs. That extended growth has generated additional traffic flows, air pollution, and demands for new infrastructure services and financing. The need for infrastructure planning and financing is frequently linked to the question of regionalism because these components cut across local R government boundaries. This leads, in turn, to local and regional discussions about whether planning, financing and implementation of such infrastructure systems can and should be handled locally. In 2000, the NAIOP Research Foundation approached Dr. Robert Schmidt of the University of Nevada, Las Vegas to conduct a study that would contribute E to the national dialog on regionalism. The purpose of the project was to examine the planning for and the financing of infrastructure systems on a regional basis, using a specific local example as a template. The research conducted for this study included a review of the current literature and data sources, interviews with key members of the development community throughout the United States, informal surveys of numerous F regional and local government agencies across the nation, and research into how the public itself views the topic. The findings are included in the document before you, which cover the following areas of focus: Analysis of Infrastructure Funding Mechanisms; Financing Case Studies; Funding Regional Infrastructure; Provision of Infrastructure and Regional Governance; and Conclusions and Recommendations. A The NAIOP Research Foundation hopes you will find the following informa- tion on infrastructure and regionalism to be enlightening. The purpose of a guidance document is to provide our members with facts and principles that can assist them in understanding the issue of financing regional infrastruc- ture, as well as help them to distinguish the myths from the realities, assess different approaches and techniques to the issue in a local context, and be C inspired to engage with members of their own communities on the topic. The end result: Productive dialogue designed to achieve positive outcomes for not just the real estate community, but for local communities as well. NAIOP Growth Issues Subcommittee E A project this ambitious could not have been accomplished without the help of NAIOP members who volunteered to serve on its evolution. Special thanks to the NAIOP Growth Issues Subcommittee for their offer to serve as a “sound- A ing board” for this document. Those members include Co-Chairs Brian Blaesser and Pete Bolton, of Boston, Massachusetts and Phoenix, Arizona, C respectively; Fred Beebee of Atlanta, Georgia; David Begelfer of Boston, Massachusetts; James Brubaker of Denver, Colorado; Ronnie Duncan of Tampa, Florida; David T. Finger of Raleigh, North Carolina; Eric S. Kassoff K of Washington, DC; Joseph A. Langley of Denver, Colorado; Karen Marcotte of Albuquerque, New Mexico; Robert F. Moody of Denver, Colorado; Charles C. Pfeffer of Maple Grove, Minnesota; Todd Sheaffer of Beaverton, Oregon; N and Robert A. “Tim” Snow of Las Vegas, Nevada. Thanks to all of you for your tireless efforts. O Special recognition clearly goes to Brian Blaesser and Tim Snow for their leadership on this issue. Brian and Tim shepherded this project from concep- W tion to publication. They not only worked with Dr. Schmidt to ensure that the major regionalism issues were analyzed and presented in a clear manner, they also contributed to the review of the several drafts of the document that L became the final product you see before you. NAIOP is indeed fortunate and grateful to have such able and knowledgeable people lead the charge in this E effort. We would also like to acknowledge the outstanding work and efforts of the D staff of NAIOP, who have worked long and hard to produce a document that would truly benefit our members, particularly Assistant Vice President for State and Local Affairs Steve Gallagher, who has been with this project from G the beginning. E There is no “quick fix” for the complex issue of regionalism. This study is not meant to provide answers, but to be used as a sounding board from which to launch further discussion. We hope this study serves as a resource for not only M NAIOP members, but for interested citizens, businesses, and governmental bodies who want to forge solutions built on objective information and sound development principles. E N Ronald L. Rayevich Shirley A. Maloney T Chairman Executive Director NAIOP Research Foundation NAIOP Research Foundation S TABLE OF CONTENTS EXECUTIVE SUMMARY 5 1.0 INTRODUCTION 12 1.1 PURPOSE 13 1.2 OBJECTIVE 13 1.3 ORGANIZATION OF RESEARCH 14 2.0 REGIONAL GOVERNANCE AND PROVISION OF INFRASTURCTURE 15 2.1 TERMS IN REGIONAL INFRASTRUCTUE DEVELOPMENT 15 2.2 THE ROLE OF REGIONAL GOVERNANCE 19 2.3 REGIONAL PLANNING 22 2.4 TRADITIONAL FINANCING PRACTICES 23 2.5 LEGAL CONSIDERATIONS 27 3.0 FUNDING REGIONAL INFRASTRUCTURE 32 3.1 USER CHARGES 32 3.2 BENEFIT CAPTURE METHODS 35 3.3 SUBSIDIES 37 4.0 ANALYSIS OF INFRASTURCTURE FUNDING MECHANISMS 41 4.1 REVENUE GENERATION CRITERIA 41 4.2 USER CHARGES ANALYSIS 46 4.3 BENEFIT CAPTURE METHODS ANALYSIS 52 4.4 SUBSIDIES ANALYSIS 60 5.0 INFRASTRUCTURE FINANCING CASE STUDIES 64 5.1 COMPARATIVE REGIONAL EVALUATION 64 5.2 REGIONAL INFRASTRUCTURE FINANCIAL MODEL 66 6.0 CONCLUSIONS AND RECOMMENDATIONS 71 6.1 FINDINGS 75 6.2 POLICY CONCLUSIONS 88 1 TABLE OF CONTENTS (CONTINUED) APPENDIX A – CASE STUDIES 92 A.1 ATLANTA, GEORGIA 92 A.2 SOUTHERN NEVADA (LAS VEGAS) 100 A.3 TWIN CITIES, MINNESOTA 107 A.4 PORTLAND, OREGON 114 APPENDIX B - LITERATURE REVIEW 123 B.1 BACKGROUND 123 B.2 REVIEW 124 B.3 COST OF COMMUNITY SERVICES (COCS) STUDIES 126 B.4 GROWTH SUBSIDIES 128 APPENDIX C – INFRASTRUCTURE IMPACT FEE MODELS 129 APPENDIX D – REFERENCE DATA 139 BIBLIOGRAPHY 151 This report was prepared for the NAIOP Research Foundation, Inc. by Quest Technology, Inc; its principal author was Dr. Robert Schmidt, J.D., Ph.D. Neither NAIOP nor the NAIOP Research Foundation has verified data set forth in the report, and any interpretation or views expressed are solely those of its author. © 2002 NAIOP Research Foundation 2 LIST OF TABLES TABLE 2-1, CHARACTERISTICS OF EXACTIONS, IMPACT FEES AND TAXATION..................... 28 TABLE 2-2, USE OF DEVELOPER AGREEMENTS .................................................................................. 29 TABLE 2-3, LOCAL RULE AND USE OF IMPACT FEES BY STATE.................................................... 30 TABLE 4-1, CHARACTERISTICS OF COMMON LOCAL OPTION TRANSPORTATION TAXES .49 TABLE 4-2, OPTIMAL TRANSPORTATION PRICING STRATEGIES ................................................. 51 TABLE 4-3, COMMERCIAL PROPERTY TAXES – LISTED BY RANK PAYABLE 1998 – LARGEST URBAN AREAS........................................................................................................................................ 53 TABLE 4-4, IMPROVEMENT DISTRICT UTILIZATION BY STATE.................................................... 54 TABLE 4-5, IMPACT FEES FOR STATE’S WITH ENABLING LEGISLATION .................................. 56 TABLE 4-6, NATIONAL AVERAGE IMPACT FEES................................................................................. 57 TABLE 4-7, SALES AND USE TAX RATES................................................................................................. 63 TABLE 5-1, PORTLAND, OR AND LAS VEGAS, NV TOTAL IMPACT FEES FOR WATER, SEWER AND STREETS......................................................................................................................................... 69 TABLE 6-1, SOURCES OF INFRASTRUCTURE FINANCING................................................................ 72 TABLE A-1, CITY OF PORTLAND SEWER RATE STRUCTURE........................................................ 119 TABLE A-2, CITY OF PORTLAND TRANSPORTATION SYSTEM DEVELOPMENT CHARGES 121 TABLE C-1, LAS VEGAS VALLEY IMPACT FEE MODEL – WATER................................................ 130 TABLE C-2, LAS VEGAS VALLEY IMPACT FEE MODEL – SEWER ................................................ 131 TABLE C-3, LAS VEGAS VALLEY IMPACT FEE MODEL – STREETS............................................. 132 TABLE C-4, PORTLAND, OREGON IMPACT FEE MODEL – WATER.............................................. 133 TABLE C-5, PORTLAND, OREGON IMPACT FEE MODEL – SEWER .............................................. 134 TABLE C-6, PORTLAND, OREGON IMPACT FEE MODEL – STREETS........................................... 135 TABLE C-7, INFRASTRUCTURE COMPARISON, IMPACT FEE MODEL – WATER ..................... 136 TABLE C-8, INFRASTRUCTURE COMPARISON, IMPACT FEE MODEL – SEWER...................... 137 TABLE C-9, INFRASTRUCTURE COMPARISON, IMPACT FEE MODEL – STREETS .................. 138 3 LIST OF TABLES (CONTINUED) TABLE D-1, SUMMARY OF COST OF COMMUNITY SERVICES STUDIES, REVENUE-TO- EXPENDITURE RATIOS IN DOLLARS............................................................................................ 140 TABLE D-2, STATE INDIVIDUAL INCOME TAXES, 2001.................................................................... 143 TABLE D-3,